Email this article to a friend

The European Commission has postponed a long-awaited plan to shake up the European over-the-counter derivatives industry in response to problems exposed by the financial crisis last year, a proposal that could have dramatic implications for OTC brokers in Europe.

EC internal markets commissioner Charlie McCreevy had planned to present a derivatives communication tomorrow to “analyse how the risks from these complex financial instruments can be mitigated”. He has now said the announcement will be postponed.

A spokesman for the Commission said: “The Communication has now been re-scheduled to next week.”

The spokesman declined to give a date for its release, which will be followed by a period of ‘stakeholder consultation’, but the Commission hopes to publish the communication in the middle of next week.

The communication will draw on the EC’s “wider review of the role played by derivatives markets in the financial crisis and an assessment of the possible need for measures to ensure that they pose no risk to financial stability”.

The Commission began the study in February this year after Europe’s largest derivatives dealers pledged to start using central counterparty services for credit default swaps by the end of next month.

The communication will follow last month’s proposals by US Treasury Secretary Tim Geithner to overhaul the US over-the-counter derivatives industry by mandating the use of central counterparties and exchanges or regulated trading systems.

Brokers have welcomed the proposed move to central counterparties but argue any shift to exchanges will jeopardise the flexibility of OTC trading.

Icap said in a statement last month: “The solution to the current problems in financial markets does not lie in attempting to mandate the transfer of OTC trading on to exchanges, as politicians and regulators understand.”

The EC’s communication is expected to be consistent with the US Treasury’s reforms but sources close to the Commission have secretly expressed fears the plan has been rushed through ahead of the summer break in Brussels which starts early next month.

There are also concerns any move to mandate a pan-European central counterparty will be fraught with legal and technical problems.